Solution for a High Net Worth Client

Lee and Suzanne live on Bainbridge Island, a small island connected by ferry to Seattle. Lee is 68 years old and his wife, Suzanne, is 51 years old. Lee is an attorney and his wife Suzanne is a nurse. Lee has made between $250K and $500K per year. Suzanne retired from nursing when they married and homeschooled their four children. All of their children have professional degrees and are very successful. Lee and Suzanne have a net worth of approximately $10 million with $2 million in liquid assets. They would like to pass as much of their estate on to their children as possible and do not want to be a financial burden on their children.

Solution:  Lee and Suzanne decided to purchase a single pay LTC policy. The premium for this policy was $346,000. Since the policy has an immediate cash surrender value of $118,916, the initial net cost of this policy was actually $227,448, which was $113,724 per insured. The LTC policy will pay up to $24,000 per month ($12,000 per person), or $288,000 annually ($144,000 per person), for the remainder of Lee and Suzanne's lives. If the policy is never used then the insurer will pay $400,000 on the second insured's death for a gain of $56,636.

Comments: For a successful client, a LTC policy is a necessary component of any LTC plan. Why carry the risk of self-insuring when the cost of one year of LTC coverage can have lifetime benefits and, if the LTC policy is never utilized, the insurer pays more than the premiums paid? If the client instead self-insures there is a problem because the $1 million used to self-insure must be kept until death, at which time the combined federal/state death taxes on this amount could be $400,000 or higher. If a C-corporation pays the premiums the premiums payments may be fully deductible.